The NextGenerationEU initiative, launched amid the COVID-19 pandemic, with its focus on investments, represented a ground-breaking departure from a tradition of fiscal consolidation in Europe. Yet, more recent developments indicate that austerity will once again dominate the context of European policymaking in the years to come.
The reform of the Stability and Growth Pact, marked by a return to rigidity over flexibility, alongside mounting pressure to increase military spending amidst constrained fiscal space, presents a dilemma for politicians. Austerity carries electoral risks, and the countries tasked with the most severe adjustments are also those historically prone to strong social unrest fuelled by austerity measures.
One potential way to escape the dilemma – implementing austerity while keeping the public on board – may be European fiscal integration in the form of new rules. Supranational rules have been shown to boost public support for domestic policies that guarantee a country’s compliance with its commitments, even when compliance is costly. This raises the question of whether European fiscal rules increase domestic support for austerity, helping politicians gain public backing for a fiscally conservative agenda.
We already know that domestic policies required by international norms in fields such as human rights legislation, foreign, environmental, migration and trade policy are easier to “sell” to the public. In a new study, I apply this logic for the first time to fiscal policymaking, theorising about and empirically testing whether fiscal rules agreed upon at the European level influence domestic support for tax hikes and spending cuts.
Supranational rules and public support for domestic action
Through their impact on public opinion, international commitments help shape national policymaking and facilitate domestic transformations that may otherwise be contested and politically unfeasible. Diverse pathways connect international rules and public opinion.
Increased support for domestic action can stem from the desire to reciprocate other countries’ efforts or be induced by fears of retaliation and reputational costs. Even when citizens do not perceive compliance as instrumentally important, or consequences for non-compliance are highly unlikely, they may still believe that living up to existing commitments is normatively important. They may also perceive domestic actions as more effective when part of a collective effort by multiple countries bound by a common rule.
Moreover, international agreements provide a valuable “second opinion”. Voters often face uncertainty about the consequences of domestic policies. By adopting rules that mandate such policies, international institutions signal their desirability to citizens. Indeed, fiscal policies are characterised by intricate budgetary trade-offs.
How does public debt influence the future costs borne by citizens? And what is the optimal path for reducing public debt? Assessing these questions presents a formidable challenge for citizens. European fiscal rules can mitigate this uncertainty by signalling that public debt reduction through austerity measures is desirable.
However, unlike policies such as human rights legislation that expand individual liberties or protections, austerity directly and visibly impacts people’s financial well-being by increasing taxes, cutting spending and affecting the quality of public services. As certain groups may bear a disproportionate burden from these adjustments, austerity’s distributive effects create a perceived sense of winners and losers. These characteristics of austerity, coupled with heightened salience within the public and political discourse, render fiscal preferences less malleable and securing public support more challenging.
European fiscal rules and support for austerity in Italy
Observational studies fail to identify a clear cause-and-effect relationship between policy decisions and public opinion because politicians can selectively adopt measures when anticipating public support. Therefore, to test the potential effect of new stricter fiscal rules agreed at the European level on domestic support for austerity, I fielded an original survey experiment in Italy.
In Italy, austerity faces widespread public disapproval, a sentiment cultivated over more than three decades of stringent fiscal discipline. Yet, Italy is not unique in this regard, as anti-austerity protests have also been observed in other countries, particularly in Southern Europe but also in the North.
During the experiment, 1,200 respondents were randomly assigned to read one of two fictitious newspaper articles regarding the adoption of a new restrictive fiscal rule mandating the reduction of Italian public debt for compliance. The manipulation involved varying the source of the rule, presenting it as either a domestic regulation or one originating at the European level.
The non-effect of European fiscal rules on domestic support for austerity
When measuring respondents’ support for public debt reduction through tax hikes and spending cuts to adhere to the new rule, no significant difference emerged between the two experimental groups. As such, the evidence starkly contrasts with established research on the presumed positive influence of supranational fiscal rules on domestic support for costly policies like austerity.
This warns against the potential of European fiscal agreements to shape citizens’ preferences and enhance the political feasibility of unpopular domestic fiscal measures. It also highlights the potential limitations in generalising findings from existing research across different policy areas, particularly considering the tangible and direct impact of compliance costs on citizens’ economic well-being, as well as the level of salience and polarisation surrounding a policy.
This conclusion delivers a sobering reality check to any European leader who had counted on relinquishing fiscal autonomy in favour of stricter European rules to effectively sell austerity to the public. Yet, amidst disappointment, it also brings reassuring news for supporters of European integration.
At a time when European integration hinges more than ever on citizens’ support, my study also finds that, despite resistance to austerity, European-level fiscal rules mandating such measures do not provoke a backlash against European policymaking. However, this equilibrium could shift in the future if politicians, unable to wield European rules to bolster support for austerity, resort to using them as scapegoats for unpopular decisions – a strategy seen time and again.
About the author:
Alessia Aspide is a Postdoctoral Researcher at the Max Planck Institute for the Study of Societies.